Transcript Arbitration : Important Aspects of Certain Laws

BY CA SUNIL H. TALATI
M.COM., L.L.B., FCA.,
PAST PRESIDENT OF ICAI

2015-16 GDP growth seen at over 8% year on to year basis.

Double digit economic growth trajectory now a possibility.

Govt remains committed to fiscal consolidation.

Inflation shows declining trend in 2014-15.

Overhauling of subsidy regime would pave the way for expenditure
rationalization.
PRIVATE & CONFIDENITAL
2

A political mandate for reform and a benign external environment
have created a historic moment of opportunity to propel India onto a
double-digit growth trajectory. Decisive shifts in policies controlled by
the Centre combined with a persistent, encompassing, and creative
instrumentalism in other areas could cumulate to Big Bang reforms.
PRIVATE & CONFIDENITAL
3

Reforms have been initiated in a number of areas and major
ones are on the horizon. The macroeconomic response to the
favourable terms of trade shock has led to an appropriately
prudent mix of increased government savings and private
consumption.
PRIVATE & CONFIDENITAL
4

In the short run, growth will receive a boost from lower oil prices,
from likely monetary policy easing facilitated by lower inflation and
lower inflationary expectations, and forecasts of a normal monsoon.
Medium-term prospects will be conditioned by the “balance sheet
syndrome with Indian characteristics,” which has the potential to hold
back rapid increases in private sector investment.
PRIVATE & CONFIDENITAL
.
5

In 2013-14, India’s trade deficit (on customs basis) declined to US$ 135.8 billion from
a high level of US$ 190.3 billion in 2012-13, mainly on account of a decline in the
growth of imports (8.3 per cent), even though growth in exports was sluggish at 4.7
per cent. The decline in imports owed to lower growth in oil imports (0.4 per cent)
and negative growth in gold and silver imports. However, in 2014-15 (AprilJanuary)
trade deficit increased marginally by 1.6 per cent to US$ 118.4 billion as against US$
116.5 billion in 2013-14 (April-January). Low export growth (2.4 per cent) and import
growth (2.2 per cent), resulted in a modest increase in trade deficit by US$ 1.8
billion. Nevertheless in terms of levels, trade deficit being close to last year reflects
on external-sector polices including trade policies.
PRIVATE & CONFIDENITAL
6

In the case of emerging market and developing economies (EMDEs), which continue to struggle
with tepid domestic demand and headwinds from structural impediments, the IMF Update
projects growth to moderate to 4.3 per cent in 2015 and 4.7 per cent in 2016. The IMF’s
projections only partially reflect the net impact of the fall in global crude oil prices and for the
near term outlook. Going forward, the lower oil price is likely to be more positive for the EMDEs
that account for more than half of the global output (purchasing power parity terms) given their
higher contribution to global growth with inflation remaining anchored. This might lead to a
better outcome than projected. A sudden correction in financial markets and downside risks to
growth with a possible further slowdown in the euro area along with the likely duration of the oil
price supply shock effect, are some of the concerns that linger on.
PRIVATE & CONFIDENITAL
7

India’s dynamic services sector has grown rapidly in the last decade with
almost 72.4 per cent of the growth in India’s GDP in 2014-15 coming from
this sector. Unlike other developing economies, the Indian growth story
has been led by services-sector growth which is now in double digits.

Services in India are emerging as a prominent sector in terms of
contribution to national and states’ incomes, trade flows, FDI inflows, and
employment.
PRIVATE & CONFIDENITAL
8

In 2014, global foreign direct investment (FDI) inflows declined by
8 per cent to an estimated US$ 1.3 trillion, due to the fragility of
the global economy, policy uncertainty, and geopolitical risks as
per the United Nations Conference on Trade and Development
(UNCTAD). China became the world’s largest recipient of FDI, with
an increase of 3 per cent driven by FDI in the services sector while
FDI in manufacturing fell.
PRIVATE & CONFIDENITAL
9

Software development and information technology enabled services (ITeS) including business process
management (BPM), software engineering R & D services and product development has emerged as one of the
most dynamic and vibrant sectors in India’s economy.

The Research and Development (R&D) sector has been growing consistently in double digits in the last few years
with growth at 20.8 per cent in 2012-13 (old method). Professional, scientific and technical activities including R&D
grew by 14.0 per cent in 2013-14 (new method). According to Global R&D Service Providers (GSPR) Rating 2014, a
report by Zinnov Management Consulting, India’s R&D globalization and services market is set to double by 2020 to
US$ 38 billion. The study estimates the overall addressable R&D globalization and services opportunity at US$ 170
billion as of 2014. Currently only US$ 55 billion of this opportunity is addressed globally. India’s share of the
addressed market is 33 per cent with in-house R&D centers contributing US$ 11.3 billion worth of services to their
parent companies.
PRIVATE & CONFIDENITAL
10

Real estate and ownership of dwelling constitute 7.8 per cent of India’s GDP in 2013-14. Both
domestic and global slowdown affected this sector with growth decelerating from 7.6 per cent in
2012-13 to 6.0 per cent in 2013-14 and FDI in the real estate sector falling to US$ 703 million in the
period April-November 2014.

House prices have increased over the years in many cities and towns as per the National
Housing Bank’s RESIDEX index of residential prices in India. In 2014, out of 26 cities, 17
witnessed increase in prices over 2013 with the maximum increase observed in Chennai (17 per
cent) followed by Ahmedabad (15 per cent ), while 7 saw decline, with the maximum fall
witnessed in Meerut (-16 per cent ) followed by Chandigarh (-8 per cent).
PRIVATE & CONFIDENITAL
11

Several policy initiatives taken in 2013-14 to help this sector include the amendment of the FDI policy, thereby
reducing the minimum floor area to 20,000 sq. m from the earlier 50,000 sq.m and bringing down the minimum
capital requirement to US$ 5 million from US$ 10 million. Budget 2014-15 also announced setting up of Real Estate
Investment Trusts (REITs) and SEBI has approved the REITs regulation. In order to encourage savings, the
deduction limit on housing loan interest for self-occupied property was also increased to ` 2 lakh from the earlier `
1.5 lakh in Budget 2014-15. In order to push development of affordable housing and achieve the target of housing
for all by 2022, the Reserve Bank of India (RBI) relaxed norms for issue of long-term bonds by banks for financing
affordable housing.
PRIVATE & CONFIDENITAL
12

Consultancy services are emerging as one of the fastest growing services in India cutting across
different sectors with some overlapping. According to Plunkett Research, global consulting industry
revenues (including human resources [HR], IT, strategy, operations, management, and business advisory
services) increased to an estimated $431 billion in 2014 compared to US$ 415 billion during the previous
year. India’s outsourcing and consulting industry is estimated at US$ 86.4 billion in 2014, accounting for
almost 20 per cent of global consulting industry revenue, and is projected to reach US$ 99.0 billion in
2015.

India’s emergence as one of the fastest growing consultancy markets worldwide is largely attributable to
increased investment activities due to liberalization of FDI, entry of many new players into the Indian
market and low cost sourcing. Indian consultants have good expertise particularly in engineering
consultancy which could be leveraged to enhance consultancy exports
PRIVATE & CONFIDENITAL
13

Consultancy services are emerging as one of the fastest growing services in India cutting across
different sectors with some overlapping. According to Plunkett Research, global consulting industry
revenues (including human resources [HR], IT, strategy, operations, management, and business advisory
services) increased to an estimated $431 billion in 2014 compared to US$ 415 billion during the previous
year. India’s outsourcing and consulting industry is estimated at US$ 86.4 billion in 2014, accounting for
almost 20 per cent of global consulting industry revenue, and is projected to reach US$ 99.0 billion in
2015.

India’s emergence as one of the fastest growing consultancy markets worldwide is largely attributable to
increased investment activities due to liberalization of FDI, entry of many new players into the Indian
market and low cost sourcing. Indian consultants have good expertise particularly in engineering
consultancy which could be leveraged to enhance consultancy exports
PRIVATE & CONFIDENITAL
14
FISCAL DEFICIT

Fiscal deficit seen at 3.9 percent of GDP in 2015-16 to
meet the challenging fiscal target of 4.1 percent of
GDP.

Govt. to remain committed to meeting medium term
fiscal deficit target of 3 percent of GDP.

Current account deficit below 1.3 percent of GDP

Hon’ble FM says have to keep fiscal discipline in mind
despite need for higher investment.
16
FISCAL DEFICIT




Fiscal deficit seen at 3.9 percent of GDP in 2015-16 to
meet the challenging fiscal target of 4.1 percent of
GDP.
Govt. to remain committed to meeting medium term
fiscal deficit target of 3 percent of GDP.
Current account deficit below 1.3 percent of GDP
Hon’ble FM says have to keep fiscal discipline in mind
despite need for higher investment.
17
INFLATION



Expects consumer inflation to remain close to 5
percent by March, opening room for more monetary
policy easing.
Monetary policy framework agreement with the RBI
clearly states objective of keeping inflation below 6
percent.
"One of the achievements of my government has been
to conquer inflation. This decline in my view represents
a structural shift."
18
MARKET REFORMS

Propose to merge commodities regulator with SEBI.

To bring a new bankruptcy code.

FM says will move to amend the RBI act this year,
and provide for a monetary policy committee.

To set up public debt management agency.
19
MARKET REFORMS
 Proposes
to introduce a public contract
resolution of disputes bill.
 To
establish an autonomous bank board
bureau to improve management of public
sector banks
20
POLICY REFORMS

To enact a comprehensive new law on black money.

Propose to create a universal social security system
for all Indians.

To launch a national skills mission soon to enhance
employability of rural youth.

To raise visa-on-arrival facility to 150 countries from
43.
21
POLICY REFORMS

Allocates 346.99 billion rupees for rural employment
guarantee scheme.

Raises threshold for application of transfer pricing
rules to 200 million rupees from current 50 million
rupees.
22
TAXATION

To abolish Wealth Tax.

Replaces wealth tax with additional 2 pct surcharge
on super rich.

Proposes to cut to 25 percent Corporate Tax over
next four years.

Royalty and FTS to be taxed at 10% instead of 25%.
23
TAXATION
FM
proposes
modification
of
permanent
establishment norms so that the mere presence of a
fund manager in India would not constitute a
permanent establishment of the offshore fund,
resulting in adverse tax consequences.

Expects to implement goods and services tax by
April 2016.

To reduce custom duty on 22 items.

GAAR deferred by another 2 years.
24
TAXATION

Basic custom duty on commercial vehicle doubled to
20 percent.

Proposes to increase service tax rate and education
cess to 14 percent from 12.36 percent.

Plans to introduce direct tax regime that is
internationally competitive on rates without
exemptions.
.
25
TAXATION
 Exemptions for individual tax payers to
continue.
 To
enact tough penalties for tax evasion
in new Bill.
 Tax
dept to clarify indirect transfer of
assets and dividend paid by foreign
firms.
26
FINANCE MINISTER'S COMMENTS

"We inherited a sentiment of doom and gloom. The
investment community had almost written us off. We
have come a long way since then.“

"We have turned around the economy, dramatically
restoring macroeconomic stability and creating the
conditions for sustainable poverty elimination, job
creation, durable double digit economic growth."
27
FINANCE MINISTER'S COMMENTS
 "While
being mindful of the challenges ...
this gives us reason to feel optimistic.“
 "Domestic
and international investors are
seeing us with renewed interest and
hope."
28